What Is VRS (Voluntary Retirement Scheme) & Eligibility?

2025-06-02

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Today, you can choose to retire based on your own needs and aspirations. You may want to explore new interests, spend more time with your family, or launch something of your own. In India, the traditional retirement age is 60, but you might prefer to take charge and plan your future a little earlier.

That’s where the Voluntary Retirement Scheme (VRS) helps. A well-designed scheme that allows you to retire voluntarily with financial benefits that support your next phase of life. If you are curious about VRS, follow the blog till the end.

Key Takeaways

VRS allows you to retire early with financial benefits, giving you control over your exit and plans.
Compensation is calculated using two methods, based on years of service or months left till retirement, and you receive the higher amount.
Eligibility typically requires being 40 years old with at least 10 years of continuous service.
Up to ₹5 lakh of your VRS payout is tax-exempt under Section 10(10C) of the Income Tax Act.
You can strengthen your financial future post-VRS with life insurance and retirement plans from trusted providers like Canara HSBC Life Insurance.

Understanding the Voluntary Retirement Scheme

The VRS full form is Voluntary Retirement Scheme. It is a programme that allows you to retire before the general retirement age. Generally, most employees retire in their late 50s or early 60s, but this scheme allows you to retire as early as your 40s. Companies offer VRS for two primary reasons: Workforce Optimisation and Workforce Productivity. To qualify for the VRS, you must meet specific criteria:

You must be over 40 years of age and have been with the company for more than 10 years.
Additionally, you can work with the same management group.

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Features of the Voluntary Retirement Scheme

The Voluntary Retirement Scheme offers several features that ensure your early retirement feels rewarding and well-supported.

Voluntary Nature: You choose VRS completely on your own. This gives you the freedom to make a decision that aligns with your personal and financial goals. The scheme is entirely optional and reflects your readiness to move on, not your employer’s demand.
Great Financial Assistance: When you opt for VRS, you receive more than just a lump sum. It usually includes benefits like your provident fund balance, gratuity, and sometimes even tax consultation. These financial components help you stay secure and make a smoother transition into the next phase of life.
Tax-Free Compensation: Under Section 10(10C) of the Income Tax Act, you can enjoy a tax exemption of up to ₹5 lakhs on your VRS payout. To benefit from this, make sure the payment is received within the same financial year. This helps you retain more money and plan your future wisely.
Non-Replacement: Once you leave through VRS, your role is not filled by a new hire. Organisations implement this rule to ensure that the scheme genuinely reduces workforce size rather than just reshuffling it. This condition also protects the integrity and intent behind offering VRS in the first place.
Fair Compensation - Your VRS package is calculated reasonably, usually based on your last drawn salary and total years of service. The longer you’ve worked, the higher your compensation is likely to be. This ensures you receive a respectable exit payout that reflects your contribution over the years.

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Benefits of the Voluntary Retirement Scheme

If you’re considering voluntary retirement, it's important to understand how the scheme can benefit you. VRS offers financial support as well as a chance to realign your career or life goals. Here's how it works in your favour:

Respectful Way to Exit:- Voluntary retirement allows you to leave your job with dignity and self-choice. Unlike layoffs, this scheme respects your years of service and ensures that your exit is smooth and planned. You won’t face sudden job loss or uncertainty, and you can prepare emotionally and financially for what’s next.
Clarity and Transparency:- The process of voluntary retirement is legally structured and transparent. You’ll be informed about the eligibility, compensation, and timelines well in advance. Since it involves no pressure and you have complete control to make an informed decision.
Helps You Secure a Financial Cushion:- Under VRS, you receive compensation based on your years of service and last drawn salary. This package can serve as a financial buffer, giving you time to explore other career options, start a business, or simply take a break without immediate income pressure.
Training and Career Support:- Some companies offer reskilling programmes and career counselling as part of VRS. If you want to shift to another industry, become self-employed, or update your skills, these resources can help you build a fresh career path.
Supports Your Mental Well-Being:- After years of working under deadlines and pressure, VRS gives you a much-needed pause. It helps reduce stress by removing the burden of routine work life. You get the space to restore your mental well-being, improve your health, and reconnect with things that bring you peace of mind.

Did You Know?

Major private and public sector companies implemented VRS to manage workforce costs during economic slowdowns.

Source: Business Today

Eligibility Criteria for a Voluntary Retirement Scheme (VRS)

To apply for the Voluntary Retirement Scheme (VRS), you need to meet certain eligibility conditions set by your organisation and in line with government regulations. Here’s what typically applies:

You must be at least 40 years old at the time of applying.
You should have completed a minimum of 10 years of continuous service with the company.
The scheme generally covers all employees, but directors of a company or a co-operative society are not eligible under VRS.

Rules and Regulations of the Voluntary Retirement Scheme

If you're planning to opt for the Voluntary Retirement Scheme (VRS), you must follow a few key rules and regulations.

No Rehiring for the Same Role - When you retire through VRS, the company cannot replace you by hiring someone else for your role. It’s also a known and effective workforce reduction strategy. The main purpose of this scheme is to reduce the overall headcount.
No Rejoining the Same Company or Affiliates - Once you take voluntary retirement, you cannot rejoin the same organisation, its management, or any sister concern. This rule ensures that the process remains genuine and is not misused. However, you are free to work with a different company or pursue other career opportunities.

How is the Voluntary Retirement Scheme Calculated?

When you opt for the Voluntary Retirement Scheme (VRS), your compensation is calculated based on your last drawn salary and either your years of service or the number of months left until retirement. The company will offer you the higher amount between the two.

Method 1: Based on Years of Service

You get around 3 months’ salary (or 45 days, depending on the company) for every year you’ve worked.)

Example:

Last monthly salary: ₹50,000
Years of service: 30
Calculation: 3 × ₹50,000 × 30 = ₹45,00,000

Method 2: Based on Remaining Service

You get your monthly salary multiplied by the number of months left until you turn 60.

Example:

Age: 50
Years left till 60: 10 → 6×12 = 72 months
Monthly salary: ₹50,000
Calculation: ₹50,000 × 72 = ₹36,00,000

Which Amount Do You Get?

The company compares both methods and gives you whichever amount is higher. Therefore, you will get the ₹45,00,000.

Final Thoughts

Voluntary Retirement Scheme (VRS) gives you the power to step away from the daily grind on your terms. It offers financial stability, time to realign your goals, and the freedom to pursue what truly matters to you. To make the most of this transition, ensure you have a strong financial plan in place. Consider securing your future with trusted solutions like Canara HSBC Life Insurance, which offers a range of life insurance plans and retirement plans tailored to your needs.

Glossary

Voluntary Retirement Scheme (VRS): A company-offered scheme allowing eligible employees to retire early with financial benefits.
Last Drawn Salary: The final monthly salary received by an employee before opting for voluntary retirement.
Gratuity: A lump sum amount paid by an employer to an employee for long-term service at the time of retirement or resignation.
Provident Fund: A government-backed retirement savings scheme contributed to by both the employee and the employer.
Section 10(10C): A tax provision that allows exemption of up to ₹5 lakh on VRS compensation from total taxable income.

FAQs

You are eligible if you are at least 40 years old and have completed 10 years of continuous service with your employer.

It’s calculated using two methods, based on years of service or months left until retirement. You get the higher of the two amounts.

Yes, up to ₹5 lakh is tax-free under Section 10(10C) of the Income Tax Act.

Yes, you can work elsewhere, but not with the same company or its subsidiaries, as per standard VRS rules.

Absolutely. VRS does not affect your other retirement benefits, like the provident fund and gratuity.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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